Air New Zealand Ltd v Commerce Commission

[2007] NZCA 27

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA186/05
[2007] NZCA 27

BETWEENAIR NEW ZEALAND LIMITED

First Appellant

ANDQANTAS AIRWAYS LIMITED

Second Appellant

ANDTHE COMMERCE COMMISSION

Respondent

Hearing:30 August 2006

Court:Glazebrook, Chambers and Ellen France JJ

Counsel:M R Dean QC and D J Cooper for First Appellant

M R Dean QC and A M Peterson for Second Appellant
D J Goddard QC and L Theron for Respondent

Judgment:28 February 2007 at 10 am

JUDGMENT OF THE COURT

A        The appeal is dismissed. 

BThe appellants must pay to the respondent costs of $6,000 plus usual disbursements.  We certify for second counsel.  The appellants’ liability is joint and several.

REASONS OF THE COURT

(Given by Chambers J)

Table of Contents

Para No
Costs aftermath to an airline alliance battle  [1]

Issues on the appeal  [3]

Should the Commerce Commission be entitled

to costs in the High Court when it is successful?               [6]

The need for symmetry[14]
           Past commission practice and previous
           New Zealand precedent[29]
           The statutory scheme and overseas precedent  [32]
Should a successful party in the High Court be
           able to recover from the losing party only
           a reasonable contribution towards its expert
           witness expenses?  [37]
Result  [65]

Costs aftermath to an airline alliance battle

[1]       After the Commerce Commission declined Qantas Airways Limited’s and Air New Zealand Limited’s applications for clearance to form what might loosely be called an alliance, the two airlines appealed under the Commerce Act 1986 to the High Court.  The airlines’ appeals were unsuccessful: Air New Zealand v Commerce Commission (No 6) (2004) 11 TCLR 347.  Subsequently the commission sought costs.  The airlines opposed the costs application, but were unsuccessful: Air New Zealand Limited v Commerce Commission (2005) 17 PRNZ 786. 

[2]       The airlines, following their loss at the substantive hearing, elected not to pursue their alliance proposal, but they have appealed the costs judgment. 

Issues on the appeal

[3]       Two issues arise.  The first is whether the Commerce Commission should be entitled to costs in the High Court when it is successful on an appeal brought against it following a determination made by it under Part 5 of the Act.  Rodney Hansen J held the commission was entitled to costs, but the airlines argue he was wrong in so finding.  They argue that there are special rules for Part 5 appeals.

[4]       If the airlines lose on that first issue, then the second issue they raise is this: should a successful party in the High Court be able to recover from the losing party only a reasonable contribution towards its expert witness expenses?  This issue raises a matter of general application under the High Court Rules; its significance is not limited to cases under the Commerce Act.  There is conflicting authority in the High Court as to the scope of recovery of expert witness expenses.  There is authority to the effect that the successful party can recover as disbursements fees paid to expert witnesses, provided the disbursement was necessary for the conduct of the proceeding and reasonable in amount.  There is also authority, however, to the effect that expert witness fees should be treated in the same way as legal fees incurred by the successful party.  That is to say, the losing party should be required to make only a reasonable contribution (say, two-thirds) towards the successful party’s expert witness expenses.  Rodney Hansen J went with the former line of authority.  The airlines argue he was wrong so to do; they say he should have restricted the commission’s recovery in respect of expert witness fees to two-thirds of actual costs incurred.

[5]       We shall discuss the issues in turn.

Should the Commerce Commission be entitled to costs in the High Court when it is successful?

[6]       At first blush, it may seem surprising that this issue could even arise, given the general principle in the High Court Rules that the party who fails with respect to a proceeding should pay costs to the party who succeeds: r 47(a).  The airlines’ argument, however, is based on Commerce Commission v Southern Cross Medical Care Society [2004] 1 NZLR 491, where this court held as a general principle that the Commerce Commission should not be exposed to an adverse costs order in the High Court for unsuccessfully opposing an appeal against one of its own determinations under Part 5 of the Commerce Act. Important public interest considerations, this court said, justified a departure from the normal rule that costs follow the event: at [17].

[7]       Neither side before us questioned the correctness of Southern Cross.  Ms Dean QC, for the airlines, submitted that fairness dictated the same policy should apply when the commission won; that is to say, the commission should neither pay costs when it loses nor receive costs when it wins.  Mr Goddard QC, for the commission, on the other hand, submitted that the policy considerations leading to the Southern Cross exception to normal principle did not apply to appeals where the commission succeeded.

[8]       In the High Court, the airlines’ case for departing from the presumption that the winner gets costs rested on three propositions (17 PRNZ 786 at [12]):

(a)The need for symmetry.  If a successful appellant is unable to recover costs from the commission, an unsuccessful appellant should not be liable for costs.

(b)Previous decisions and the practice of the commission weigh against recovery.

(c)The nature of the appeal process, its place in the statutory scheme, and the rights and interests at stake militate against a right to recover costs.

[9]       As to the first, Rodney Hansen J held that the factor which most influenced this court in Southern Cross – namely, “the public interest in the Commission being actively involved in appeals against its decisions” – would not be furthered if the commission was unable to recover costs: at [14]. If anything, he thought, an inability to recover costs might discourage the commission from participating.

[10]     As to the second proposition, the judge considered “little assistance” was to be derived from earlier cases involving the commission, namely Auckland Bulk Gas Users Group v Commerce Commission [1990] 1 NZLR 448 and Power NZ Limited v Mercury Energy Limited [1996] 1 NZLR 686. The approach in those cases was dictated by their “particular circumstances”: at [20].

[11] As to the third proposition, the judge thought “the fact that the commission [was] participating in the appeal process as part of its statutory function” was not a reason why it should be disentitled to costs: at [37]. The judge also considered that “the nature of the rights involved” on a Commerce Act appeal were not such as to warrant departing from the presumption: at [38]. On this branch, the judge concluded at [40]:

When an appeal is brought to further a commercial interest, and the Court on appeal decides that interest does not coincide with the public interest, I see no reason why the usual costs consequences should not follow.

[12]     On the appeal before us, Ms Dean forcefully and thoughtfully attacked Rodney Hansen J’s reasoning.  But, far from being convinced he was wrong, we think his conclusion and the reasoning underlying it were correct. 

[13] Ms Dean said there were six reasons why the High Court judgment was wrong. Some of these reasons overlap, however. In reality the airlines’ case is still based on the three broad propositions Rodney Hansen J cited, and which we have quoted above at [8]. We propose discussing the case under the three heads identified in Rodney Hansen J’s decision.

The need for symmetry

[14]     Ms Dean’s first argument was that this case was a sequel to Southern Cross.  The issue was, she said, whether Southern Cross applied one way, as the judge found, or both ways.  At the heart of the Southern Cross reasoning was the “public interest role” of this type of Commerce Act litigation and of the Commerce Commission itself.  She further noted the Part 5 process was voluntary.  It was important that those acquiring businesses which may be caught by the Act should not be deterred from utilising the voluntary Part 5 process.  She submitted they might be if there were a risk on appeal of being landed with a costs order in the commission’s favour. 

[15]     Ms Dean further submitted (her second argument) that “fairness” dictated a symmetrical result.  She said it was neither fair nor logical to allow asymmetry, which was the consequence of the High Court decision.  Fairness and consistency were an aim of the High Court costs regime.  Fairness dictated that applicants should meet their own costs at each stage of an application, while the commission met its costs.  The commission was, after all, funded from the public purse in the public interest. 

[16]     Ms Dean’s third argument was similar to her second.  She submitted that, in this court, on a second appeal, “normal” costs rules applied.  How then, she asked, could one justify an asymmetrical regime on an appeal in the High Court?

[17]     All these arguments are but different ways of making the same point, namely that fairness dictates that a costs regime must always reflect symmetry.

[18]     We do not accept that proposition, for the same reasons Rodney Hansen J did not accept it.  Just because this court held in Southern Cross that the general principle set out in r 47(a) did not apply in circumstances where the commission was unsuccessful on a Part 5 appeal, it does not follow r 47(a) is similarly negated when the commission is successful on such an appeal.  The analysis must be more sophisticated than that: one needs to analyse why the r 47(a) principle is negated in the former case to see whether the reasoning is equally applicable in the latter.  There is no general principle that the costs rules apply symmetrically.

[19]     So why was the commission held not liable to pay costs when it lost on appeal?  Mr Fogarty QC had argued for the commission in Southern Cross that “there were special reasons for exempting the commission from a costs burden” on Part 5 appeals: at [15]. Mr Fogarty submitted “it was in the public interest that appeals of this nature should not proceed unopposed and that the commission had a corresponding duty to provide evidence and argument in opposition to the appeal”.

[20]     This court accepted that proposition.  This court held at [17]:

We agree that it is in the public interest to have the commission take an active part to assist an appellate Court when reviewing one of its determinations in circumstances where there would otherwise be no opposition to the appeal.  It would be a matter of real concern if exposure to costs operated as a disincentive to the commission’s active assistance in this situation.  There would be additional expense to the public if an amicus curiae had to be appointed.  The commission’s current approach would seem to us to be consistent with the encouragement which the Courts have given to the commission to play such a part.

[21] This court then went on to draw a distinction between the commission and the Commissioner of Inland Revenue, who now regularly has costs awarded against him when he has been unsuccessful on an appeal. This court thought that there was a clear distinction between the Commerce Commission and the Commissioner of Inland Revenue, as only the latter “has close control over the litigation to which he is a party”: at [19]. Under ss 6 and 6A of the Tax Administration Act 1994, the Commissioner of Inland Revenue can enter into compromises for commercial and practical reasons. While the Commerce Commission has some flexibility in how it deals with appeals under Part 5, its room for manoeuvre is limited by the public interest. This court considered there was “a clear distinction between a governmental agency pursuing a debt and one which assists the Court to determine how competition law impacts upon the public interest”: at [19].

[22] Those factors, taken together, justified a refusal to award costs in terms of r 48D(f): at [14].

[23] This court stressed, however, that the “general principle…that the Commerce Commission ought not to be exposed to an adverse costs order for unsuccessfully opposing an appeal against one of its own determinations under Part V of the Commerce Act 1986 if all the commission has done is to assist the High Court by presenting necessary evidence and argument in opposition to the appeal in the public interest” was nonetheless only “the right starting point”: at [21]. The court went on:

…it is important not to overlook the inherently broad nature of a Court’s discretion over costs.  Some flexibility must therefore be preserved to meet the requirements of each individual case.

[24]     It is important to recognise, therefore, that Southern Cross does not displace the usual ability to impose costs on the commission in a case where it is apparent the litigation was unnecessarily prolonged or steps were taken which were outside the commission’s public interest role.  There was, however, nothing “special” about the Southern Cross case “to displace the application of the general principle proposed”: at [22].

[25]     The reasoning in Southern Cross, which counsel for both parties accepted, does not assist the airlines in this case. Indeed, this court’s reasoning would be undermined if we were to hold the commission should not receive costs when it won. Just as an “exposure to costs” would operate as “a disincentive to the commission’s active assistance” on Part 5 appeals (see the passage cited at [20] above), so too a complete ban on the commission’s being able to recover a contribution towards its costs on an appeal where it wins could be a disincentive to the commission’s active assistance. Arguing symmetry does not advance matters. What the airlines must show, as the commission did in Southern Cross, is that, in terms of r 48D(f), there is “some … reason … which justifies the Court refusing costs … despite the principle that the determination of costs should be predictable and expeditious”.  The airlines can point to no such reason.  They cannot rely on public interest as a ground for refusing costs.  The airlines, in bringing their appeal, were not influenced by public interest; they were pursuing what they perceived to be their commercial interest. 

[26]     Ms Dean’s first argument misstates the real question when she says the issue is whether Southern Cross applies one way or both ways.  The true issue is whether the airlines can point to a reason as to why the commission should be refused costs.  Obviously the airlines cannot rely on the reason the commission relied on (successfully) in Southern Cross.  No other reason has been suggested except for symmetry.  But symmetry cannot be a valid reason: that after all would amount to saying that the airlines can claim a “public interest” defence, even though that is  not the case.  Ms Dean was right that the heart of the Southern Cross reasoning was the “public interest role” of the commission, but that provides no assistance to unsuccessful commercial appellants.  The commission’s “public interest role” assists only it (of course, only where appropriate).

[27]     Ms Dean further argued that, if companies could be liable for costs on a Part 5 appeal, this would discourage them from applying for clearances.  We do not accept that argument, for the reasons Mr Goddard gave.  He submitted it was just “not plausible” that commercial parties would refrain from seeking clearances because they might eventually have to pay costs in the High Court.  That possibility, Mr Goddard submitted, was too remote.  A company proposing to enter into a transaction which may fall foul of the Commerce Act is not going to base its decision on whether to apply for clearance on whether or not it might be liable to costs should its application for clearance fail and a subsequent appeal similarly fail.  That possible costs liability, so remote in time and, in normal circumstances, so insignificant in relation to the overall cost associated with any application for clearance, has to be set against the considerable advantages which accrue to commercial parties who do secure clearances for their proposed ventures.  Our decision in this case will not have any effect on commercial players’ decision-making as to whether to apply for clearances.

[28]     Ms Dean’s third argument under this “symmetry” head is based on a false premise.  She submitted that, on a second appeal under the Commerce Act, this court applies “normal” (i.e. symmetrical) costs rules.  That is not necessarily correct.  It is true that, if the commission loses in the High Court and appeals to this court and loses again, it can expect to pay costs with respect to the second appeal: Telecom Corporation of New Zealand Limited v Commerce Commission [1992] 3 NZLR 429 at 440; Commerce Commission v Southern Cross Medical Care Society (2003) 10 TCLR 824.  But the converse does not hold true: if the commission wins in the High Court and the commercial party appeals to this court and wins, the commission will not generally be required to pay costs with respect to the second appeal: Commerce Commission v Southern Cross Medical Care Society [2004] 1 NZLR 491 at [21]. In the latter circumstances, the commission may well be able to rely on a “public interest” defence in this court. So “symmetry” is not the order of the day in this court either.

Past commission practice and previous New Zealand precedent

[29]     Ms Dean’s fifth argument was that precedent could “provide useful guidance to this court in deciding the issue of principle”.  Precedent, she submitted, showed it had “long been the position in the case of appeals from its decisions that the commission should “not be awarded or ordered to pay costs””.  In that regard she referred us to Auckland Bulk Gas Users Group v Commerce Commission [1990] 1 NZLR 448, Fisher and Paykel Limited v Commerce Commission [1990] 2 NZLR 731, and Foodstuffs (Wellington) Cooperative Society Limited v Commerce Commission HC WN AP62/92 18 December 1992.  She also referred us to Power New Zealand Limited v Mercury Energy Limited [1996] 1 NZLR 686 (HC), which she acknowledged went “the other way”, although she noted that the commission, although held entitled to costs, did not in fact seek them in that case.

[30]     These cases were decided prior to Southern Cross and prior to the enactment of the new High Court costs regime, which this court noted in Southern Cross implemented “a more prescriptive approach to costs than previously”: at [18]. In any event, only Bulk Gas involved an unsuccessful appeal like the present.  We consider Bulk Gas, a High Court decision, is no longer correct on the question of costs.  Greig J appears to have considered “the ordinary rule” to be that the commission “should not be awarded or ordered to pay costs”.  If that was ever “the ordinary rule”, it has not been since Southern Cross was decided. The decision may nonetheless be justifiable on the basis that the commission was not really required to take part in the substantive matters on appeal, “the hearing of [those] issues [having been] fully canvassed by the other parties” to the appeal: at 472.

[31]     This argument too does not avail the airlines. 

The statutory scheme and overseas precedent

[32]     Ms Dean’s fourth and sixth arguments were based on the statutory scheme and the need for consistency as between regulator and applicant.  In this regard, she referred us to like overseas schemes and to the approach in other jurisdictions to costs on appeals from merger decisions.  She submitted Canada and the European Union provided for costs either way.  Australia provided “no costs should lie either way”.  All those countries, therefore, she submitted, adopted “a symmetrical approach”.  She submitted the “only jurisdiction where it appears strict symmetry is not necessarily inevitable [was] the United Kingdom”.  Even there, however, the Competition Appeal Tribunal (which plays a role similar to the High Court here) had emphasised that “policy considerations” usually dictated a departure from the normal rule that costs follow the event. 

[33]     Mr Goddard accepted that regulators in some overseas jurisdictions had been held liable for costs when they lost on appeals.  But he submitted little assistance was to be gained from overseas authorities as they were determined in a context of different regulatory schemes and different costs regimes.  Further, the overseas regulators’ powers and responsibilities, especially on appeals, were not the same as the Commerce Commission’s.  Mr Goddard also took issue with Ms Dean’s summary of the UK position.  He submitted that the UK Competition Appeal Tribunal had set out principles governing its costs discretion that made it clear that “strict symmetry is neither inevitable nor appropriate”. 

[34] Rodney Hansen J, in that part of his judgment where he was considering “the nature of the appeal process, the statutory role of the commission, and the rights and interests at stake”, dealt at some length with the Australian authorities to which the airlines’ then counsel had referred and which Ms Dean referred to us. He concluded that the circumstances in which the commission’s claim to costs fell to be considered differed significantly from those pertaining in the Australian decisions. Whereas the discretion available to the appellate tribunals in those cases was broad and unfettered, the discretion of the New Zealand High Court was subject to the statutory presumption that costs should follow the event (r 47(a)): at [36].

[35]     We agree with the judge and with Mr Goddard’s submission.  We do not propose to analyse the overseas authorities.  The interesting conflict between Ms Dean’s synthesis of the English cases and Mr Goddard’s will remain undetermined.  Circumstances are just too different to enable useful conclusions to be drawn from overseas practice: the regulatory regimes are different; the underlying costs regimes are different; the status of the appellate tribunals is different.  How costs are dealt with around the world is very country-specific.  We have a specific and prescriptive costs regime in our High Court.  For reasons given earlier, the commission was entitled to costs on the basis of the principles contained in our codified costs regime.  It would be quite wrong to deviate from those codified principles simply because costs are treated differently in some other jurisdictions.

[36]     For these reasons, we conclude on the first issue raised on this appeal that Rodney Hansen J was right to award the Commerce Commission costs on its successful defence of the airlines’ appeal.  Our essential reasoning is the same as the judge’s.  We record the airlines did not challenge the quantum of the costs award in the event we found the commission was entitled to costs. 

Should a successful party in the High Court be able to recover from the losing party only a reasonable contribution towards its expert witness expenses?

[37]     Rodney Hansen J had to deal with numerous disputes relating to disbursements claimed by the Commerce Commission and two other parties who had joined the commission in opposing the airlines’ appeal.  (Those other parties played no part on the appeal before us.)  On this appeal, we are concerned with only one of the disbursements which were in dispute, namely the commission’s claim in respect of the cost of its experts.  We are not concerned with the quantum of the claim, but rather with whether the losing party had to meet the full cost of the experts or just pay a contribution towards the actual expenses. 

[38]     Rodney Hansen J noted that there was High Court authority suggesting the losing party should make only a contribution towards the actual expenses of expert witnesses.  He referred to Heath J’s decision in Glaister v Amalgamated Dairies Limited (2003) 16 PRNZ 536, where the judge had said that, as a matter of discretion, he did not believe it appropriate to go beyond the two-thirds rule normally applied to the rates for law practitioners.  He also noted that in King and Steer Construction Limited v Clarke HC NWP CIV 2003-443-129 3 September 2004, Frater J had awarded three‑quarters of actual costs. 

[39]     Rodney Hansen J considered, however, those decisions to have been effectively overruled by r 23 of the High Court Amendment Rules (No 2) 2002 (SR2002/410).  That rule substituted a new r 48H to the High Court Rules, which (with later amendments) reads as follows:

48H Disbursements

(1)In this rule, disbursement, in relation to a proceeding, -

(a)means an expense paid or incurred for the purposes of the proceeding that would ordinarily be charged for separately from professional services in a solicitor’s bill of costs; and

(b)includes –

(i)      fees of Court for the proceeding:

(ii)     expenses for serving documents for the purposes of the proceeding:

(iii)    expenses for photocopying documents required by these rules or by a direction of the Court:

(iv)    expenses of conducting a conference by telephone or video link:

(v)     expenses of conducting a hearing by video link; but

(c)does not include counsel’s fee.

(2)A disbursement may be included in the costs awarded for a proceeding to the extent that the disbursement is –

(a)of a class that is either –

(i)      approved by the Court for the purposes of the proceeding; or

(ii)     specified in subclause (1)(b); and

(b)specific to the conduct of the proceeding; and

(c)necessary for the conduct of the proceeding; and

(d)reasonable in amount.

(3)A Judge or Associate Judge may direct a Registrar to exercise the powers of the Court under this rule.

[40] The judge said that he did not understand the airlines “to suggest that the fees and expenses of the witnesses called by the commission [did] not meet the criteria in r 48H(2)”: at [72]. Accordingly, he awarded the full amount claimed.

[41]     Ms Dean submitted the judge had erred on this topic.  She referred to not only Glaister and King and Steer but also Martelli McKegg Wells and Cormack v Commbank International NV (1996) 10 PRNZ 153 (CA) and Auckland Gas Company Limited v Commissioner of Inland Revenue (No 2) (1998) 18 NZTC 13,804 (HC).  In all those cases, she said, the courts had awarded only a proportion of actual costs.  We note, in passing, that all these cases involved proceedings to which the new r 48H did not apply. 

[42]     Since Rodney Hansen J’s decision, Andrew Beck, in his regular “Litigation Section” in the New Zealand Law Journal, has written a note on what he says are conflicting High Court decisions as to recovery of expert witness expenses: [2005] NZLJ 387.  He said there was a “need for guidance”.  He favoured a two-thirds contribution.  He said (at 388):

In particular, it is hard to see why there should be full recovery of fees paid to an accounting professional for services rendered in connection with litigation, but only two-thirds of the legal fees should be recovered.

[43]     He went on to say that, if full reimbursement of expert witness fees was the correct approach, then there would be “a perverse incentive for parties to try and have as much as possible of the work involved in litigation carried out by experts other than lawyers”: at 389. 

[44]     Mr Beck’s article was referred to with approval by Baragwanath J in Progressive Enterprises Limited v North Shore City Council (2005) 17 PRNZ 919.  His Honour considered Mr Beck’s argument to be “unanswerable”: at [27].  He concluded:

Like Heath J in Glaister v Amalgamated Dairies I can see no reason in principle for treating the costs of other professional experts differently from those of lawyers and would apply a two-thirds recovery to all. 

[45]     Since the hearing before us, two other High Court judges have had to grapple with this question.  In Commerce Commission v New Zealand Bus Limited HC WN CIV 2006-485-585 29 September 2006, Miller J followed Rodney Hansen J and the other cases which had allowed full recovery, provided r 48H criteria were met.  In Myers Park Apartments Limited v Sea Horse Investments Limited HC AK CIV 2004-404-7180 24 October 2006, Venning J expressly refused to follow Progressive Enterprises, saying he did not accept “that cost principles in the earlier rules [required] the two-thirds recovery to apply to the costs of professional experts”: at [14]. He considered the winning party could recover in full witness expenses which were specific to the conduct of the proceeding, necessary for the conduct of the proceeding, and reasonable in amount, those criteria being fulfilled in the case before him.

[46]     We are aware the Rules Committee is currently considering what the recovery rule should be: see rulescommittee/documents/ChangestotherecoveryofcostsintheHighCourtRules.pdf.  That body will have the final say.  But we have an obligation to give our view as to what the current law is, although recognising the Rules Committee may opt for a different regime for the future. 

[47]     We have no doubt that, since the enactment of r 48H, the winning party is generally entitled to recover the actual expenses of its expert witnesses, provided they satisfy the criteria in r 48H(2).  We affirm Rodney Hansen J’s reasoning in this regard.  We have found particularly helpful Miller J’s careful exegesis in New Zealand Bus: at [70]-[101]. 

[48]     To our minds, r 48H is clear.  There is no reference in it to the losing parties being required to make only a contribution, whether two-thirds or otherwise.  All disbursements are treated the same under r 48H, and full recovery is in theory possible.  The protection against unreasonable claims for disbursements is set out in subcl (2).  But provided those criteria are met, the winning party is prima facie entitled to recover the actual expenses.  There is no suggestion in the rules that the principle contained in r 47(d) has any application outside its area of legal costs recovery. 

[49]     As Rodney Hansen J correctly observed, r 23 of the High Court Amendment Rules (No 2) 2002, substituting the new r 48H, effected a substantial change in the law, rendering inapplicable earlier decisions on the recovery of expert witness expenses.  In particular, the amendment cut the tie with the Witnesses and Interpreters Fees Regulations 1974.  Mr Beck in his article suggests that some judges appear to be under the misapprehension that the Witnesses and Interpreters Fees Regulations have “continuing application”: at 388.  If there is a belief to that effect, it is wrong.  In the area of civil costs recovery, the 1974 regulations have no current relevance. 

[50]     The 1974 regulations were, however, the root cause of the unhappy state into which this area of law had sunk.  Under the pre-2002 regime, there was a very clear link between the High Court civil costs regime and the 1974 regulations.  The old r 48 provided for a scale of costs as set out in the then Second Schedule to the High Court Rules.  Item 34 of that Second Schedule provided as follows:

In addition to the foregoing items, all disbursements for –

(a)Fees of Court:

(b)Witnesses and interpreters’ fees, allowances, and travelling expenses in accordance with the Witnesses and Interpreters Fees Regulations 1974:

[51]     The scale under those regulations had become by the 1990s, if not earlier, “hopelessly out of date and inadequate through lack of revision following periods of high inflation”: Martelli McKegg at 155.  To redress that inadequacy, the courts increasingly had regard to reg 8(2) of the 1974 regulations, which read as follows:

(2)Where the amounts payable under these regulations are fixed by the Court, the Court may authorise those amounts to be increased in any case where it considers that by reason of exceptional circumstances it is desirable to do so.

[52]     In Martelli McKegg, this court held that recourse to reg 8(2) was not the only way in which a court deciding costs could provide an uplift to the regulations’ scale.  In addition, this court said, a judge could, where appropriate in a particular case, exercise the general discretion in r 46 of the High Court Rules.  Rule 46 at that time conferred a very broad general discretion; in addition, r 46(2) specifically empowered the court to fix a sum as costs, notwithstanding that the sum was greater or less than the sum named in the Second Schedule.

[53]     The important point to note, however, is that the starting point was the regulations’ scale.  The scale had become out of date, but still bound.  (The scale was probably not intentionally low: inertia simply prevented regular updating.  The regulations were not and are not under the aegis of the Rules Committee.)  Any uplift from scale had to be justified, whether under reg 8 or under r 46.  In those circumstances, it is no wonder that courts rarely (if ever) ordered recovery of actual expert witness expenses.  The fact the losing party paid only a contribution had very little to do with the so-called “two-thirds recovery” rule, which over time had crept into some awards of legal costs under the old costs regime, which had also become somewhat (though not hopelessly) out of date.  Different factors were at work in assessments relating to recovery of expert witness costs: the court was having to satisfy itself that there were “exceptional circumstances” (reg 8) or considerations of justice (r 46) which demanded a departure from scale. 

[54]     All that jurisprudence is now irrelevant.  There is now no link to the 1974 regulations; there is, therefore, no need to consider what uplift (if any) should be applied to the scale therein. 

[55] We need to explain why we have not followed Mr Beck’s suggestion, as summarised at [40]-[41] above. We concentrate on Mr Beck’s article, as it contains much fuller reasoning than Baragwanath J’s decision in Progressive Enterprises.  His Honour effectively adopted Mr Beck’s reasoning.  We consider, however, Mr Beck’s reasoning, with respect, to be flawed.  We have formed that view for five reasons, which overlap.

[56]     First, the article proceeds on a false premise (at 388):

Given that the new rules reflected what was in any event the common practice, it might have been expected that there would be no change in the approach of the Courts.  Recent cases indicate that this may be an erroneous assumption. 

[57]     In our view, however, the new rules were not intended to reflect existing practice: they were intended to introduce a new regime.  It is no surprise, therefore, that the “recent cases” which Mr Beck goes on to discuss reflect a “change in … approach”.  They were correct to do so. 

[58]     Secondly, we do not agree with the article’s description of “the common practice” before the amendment.  There never was a “two-thirds” rule so far as expert fees’ recovery was concerned.  We accept that in some cases the court did end up awarding approximately two-thirds of actual costs, but that outcome was not achieved by taking actual costs and applying a two-thirds multiplier.  Rather, this court’s decision in Martelli McKegg, the leading authority on disbursements under the old regime, required a court determining costs to follow these steps:

·Consider scale

·If scale in the particular circumstances of the case would lead to an unjust recovery, increase recovery so as to award a reasonable sum. 

[59]     Sometimes that process led indirectly to recovery of approximately two-thirds of actual expenses, but often it led to recovery of a quite different percentage of actual costs.  A direct application of a “two-thirds recovery rule” would have been quite contrary to the old High Court costs regime and the 1974 regulations, as the above discussion makes clear. 

[60]     Thirdly, neither the 1974 regulations nor the old High Court costs regime ever drew a link between the recovery of legal fees and the recovery of expert witness expenses.  Each was in an entirely separate compartment.  That division continues to apply under the current costs regime.  Disbursements, including disbursements for expert witnesses, are always concerned with the actual costs incurred by the party; the recovery of legal costs on the other hand is rarely concerned with actual costs.  That is made clear by the principle in r 47(e).  See generally Nomoi Holdings Limited v Elders Pastoral Holdings Limited  (2001) 15 PRNZ 155 (HC) and Holdfast NZ Limited v Selleys Pty Limited (2005) 17 PRNZ 897 (CA).  The current costs regime does not necessarily provide recovery of “two-thirds of the legal fees”, as the judge determining costs recovery is normally unconcerned with actual fees.  So the linkage suggested is a false one; applying a two‑thirds recovery rule to actual expert witness fees will not result in “equality” with the legal costs recovery regime under the rules. 

[61]     This leads on to the fourth point: Mr Beck’s suggestion that full reimbursement of expert witness fees will lead to “a perverse incentive” for parties to have work done by experts other than lawyers.  We agree with Miller J that this “overstates the risk of outsourcing litigation to experts”: New Zealand Bus at [96]. There is a clear distinction between the role of the lawyer and the role of the expert witness, as Schedule 4 to the High Court Rules makes clear. Clause 2 of that schedule specifies:

An expert witness is not an advocate for the party who engages the witness.

[62]     A party can recover in respect of an expert witness only for the time he or she spends giving evidence and the time he or she spends in preparing that evidence.  In addition, a party could properly claim for time spent by its expert in critiquing other parties’ experts so as to assist counsel to understand the issues and opposing contentions and to assist counsel in cross-examination.  But experts do not draft pleadings and do not write legal submissions.  Any claim for time spent on those tasks would not fall within the criteria in r 48H(2).  Once the different functions of advocate and expert are recognised, the underlying rationale for Mr Beck’s suggestion disappears.  Indeed, to suggest equality on that ground would send to lawyers and experts quite the wrong message.

[63]     Fifthly, Mr Beck accepts that all disbursements other than expert witness fees are not subject to a two-thirds restriction.  Given that r 48H does not refer to expert witness fees at all, it is very hard to see how, as a matter of statutory construction, expert witness fees can be subject to different criteria from other disbursements.  The only possible way the new rule could be so read is if the principle in r 47(d) could somehow apply.  But it does not.  First, it is clearly restricted to legal fees.  Secondly, it is not a principle to which a judge determining costs need ever have regard in any event.  Rather, the point of r 47(d) is to explain to litigants and the public how the Rules Committee goes about its task of fixing and amending from time to time appropriate daily recovery rates: see r 48A, and see also McGechan on Procedure (looseleaf ed) at [HR48A.01]. 

[64]     For these reasons, we hold that a successful party in the High Court can recover from the losing party its actual expert witness expenses, provided the r 48H(2) criteria are met.  We express no view as to whether the current regime should be amended along the lines suggested by the Rules Committee in its current consultation paper.

Result

[65]     We dismiss the airlines’ appeal. 

[66]     In accordance with the views expressed in these reasons for judgment, we consider the commission is entitled to costs in this court from the airlines.  That also accords with this court’s decision in Power New Zealand Limited v Mercury Energy Limited [1997] 2 NZLR 669 at 680.

Solicitors:
Bell Gully, Auckland, for First Appellant
Russell McVeagh, Auckland, for Second Appellant
Commerce Commission, Wellington, for Respondent